It’s sadly easy to become numb to the news of more layoffs in the gaming industry, given its frequency over recent months. But Microsoft’s shutdown of four Bethesda studios stands out for its blatant reversal of Xbox’s purported post acquisition, Game Pass-centric future. The about face erodes trust in the Xbox brand and questions whether there’s any coherent first party strategy.
The shuttering of Tango Gameworks was particularly galling. The studio’s latest release, Hi-Fi Rush, exemplified the independence, creativity, and high quality that Xbox leadership claimed their first studios should aim for. Hi-Fi was a critical darling, landing on many critics’ top 10 lists, won a BAFTA, and was Xbox’s highest first party game of 2023 on OpenCritic. It also was a creative risk for Tango Gameworks, a bright, colorful throwback to the Dreamcast era for a studio that built its reputation on survival horror games.
Hi-Fi’s excellence also leveled up the value of Game Pass, Xbox’s greatest differentiator against the competition. It’s a draw for the service on its merit and the kind of high quality gem that can serve as an effective gap between some major AAA releases on Game Pass to minimize customer churn.
And don’t take just my speculation. VP of Xbox marketing Aaron Greenberg tweeted last year that Hi-Rush was “a breakout hit for us and our players in all key measurements and expectations.”
But actions speak louder than the pithy words of Xbox leadership or the speculative Xbox strategy I outline here. Today, none of it is enough for Microsoft. Tango Gameworks was flagged for some vague corporate weakness (my guess is a pitch for a Hi-Fi sequel that wouldn’t reach Microsoft’s short-term revenue goals), and their reward was a studio closure and mass layoffs.
Frustratingly, a post-ABK acquisition platform holder like Microsoft should be one of the best environments around to cushion any revenue weaknesses from niche passion projects like Hi-Fi that add value in other ways. Yet with Microsoft, you’re apparently one mistake from a shutdown, with unclear, shifting goal metrics.
I can’t imagine how first party Xbox developers are reacting to these studio closures, especially those that deviate from a proven blockbuster franchise. Consider Ninja Theory, a small studio days away from releasing Hellblade II. The arthouse action-adventure game has a small-scale, character-driven story focusing on mental trauma. Like with Hi-Fi and the original Hellblade, it’s the kind of game that wins critical praise and will find a devoted audience but won’t be a sales juggernaut. There’s also Double Fine, a development studio acclaimed for its quirky adventure games (Psychonauts, Grim Fandango), none of which have had substantial commercial success.
Are both Ninja Theory and Double Fine now at risk of a shutdown in a few months? Will Microsoft cancel future creative endeavors, to quote the head of Xbox Game Studios Matt Booty regarding the studio shutdowns, to “focus on our priority games” (read, reliable moneymakers like Call of Duty and Fallout)?
The aggravating truth is we’ll have to wait months, if not years, to settle on answers to these questions. Xbox can’t seem to decide on its first party direction or even baseline measurements of success. One path supports a wide diversity of games of different sizes, genres, and target audiences. Hi-Fi Rush, alongside other Game Pass titles like Pentament, Immortality, and Signalis that came out over the last few years, lend credence to this direction. But the Bethesda studio closures and what appears to be a mega marketing push for Call of Duty hint at a more dystopic corporate narrowing that diverts resources to the biggest, conservative hitmaker franchises. It’s an iteration on the “fewer, bigger, better” framework adopted by many third party publishers like EA and Embracer Group.
My hunch is that the messiness and contradictions we’re seeing play out at Xbox stem from corporate politics: post-ABK acquisition, gaming grows to Microsoft’s third largest business, Game Pass revenue is plateauing, and internal power struggles and flip-flops on the future manifest in public. Meanwhile, the lives of thousands of employees are being derailed while promising games are getting lost in the shuffle.
Will Xbox commit to long term innovation, and risk taking? Or become another EA, chasing the genre mega hits of a previous generation? Microsoft’s sheer size and clout could potentially find a way to thread the needle and plant a flag in both directions. But we need a steady hand at the wheel to do so. Based on Microsoft’s latest actions, I’m increasingly skeptical that’s possible.